November 11, 2022

Lest we forget. Remembrance Day

Daily Market Commentary

Canadian Headlines

  • Onex Corp. said Bobby Le Blanc will become its chief executive officer next year, replacing Gerry Schwartz, who has been in charge of the private-equity firm since he founded it in 1984. Le Blanc will take over after next year’s annual meeting. Schwartz, 80, will remain chairman and controlling shareholder of the Toronto-based firm, as he owns all of its multiple-voting shares. “Bobby has shown exemplary leadership over his 23 years with Onex and is ideally suited to guide Onex into its next phase of growth while providing for a smooth transition for the organization,” Schwartz said in a statement Friday.
  • Canada is cracking down on methane leaks from the oil and gas sector, raising the bar on efforts to cut emissions of one of the world’s most potent greenhouse gases. The government proposed that all oil and gas facilities — including wells — must be monitored on a monthly basis and any leaks repaired within 30 days. Canada also proposed tough rules on venting and capturing methane to cut emissions by 75% by 2030 from 2012 levels. Around 130 countries have signed the Global Methane Pledge, a commitment to reduce discharges by 30% by the end of the decade. The US and European Union will announce as early as today their plans to make gas and oil producers meet that pledge as nations at the COP27 climate summit in Egypt seek ways to keep global warming below 1.5 degrees.

World Headlines

  • European equities were steady as traders mulled technical levels amid easing Covid rules in China and expectations that a slower-than-expected US inflation print will lead to smaller rate hikes. The Stoxx Europe 600 edged 0.1% higher by 11:14 a.m. in London, after yesterday closing at the highest level since late August. The latest jump has pushed the index over its 200-day moving average for the time since February, while the 14-day relative strength index, a technical momentum indicator, has now surged into overbought territory for the first time in nearly a year. The UK’s FTSE 250 Index led the gains among country indexes following the mid-cap benchmark’s biggest jump since March on Thursday.
  • US index futures and European stocks rallied as the euphoria over falling inflation in the world’s largest economy extended into a second day and China relaxed some Covid restrictions. Contracts on the S&P 500 and Nasdaq 100 indexes rose at least 0.4% each after US stocks surged the most since early 2020 on Thursday. European equities headed for the best week since March. The dollar was poised for the longest streak of weekly losses in more than two years. Risk sentiment has come back roaring into global markets after a sharper-than-forecast drop in US inflation improved the prospects of a dovish tilt by the Federal Reserve. However, some money managers warn that such expectations are misplaced as the central bank won’t consider its job done until inflation reaches its target of 2%, far below the October level of 7.7%.
  • Asia’s stock benchmark jumped by the most since March 2020 as China’s move to ease some Covid rules supercharged a rally sparked by softer US inflation. The MSCI Asia Pacific Index climbed as much as 4.6%, also on track for its best weekly gain since March 2020. Hong Kong’s benchmark surged more than 7% after China reduced its quarantine time for inbound travelers and scrapped Covid flight suspensions, adding to positive sentiment around top leaders calling for a more targeted approach to controlling the coronavirus. Regionally, chipmakers soared, driving benchmarks in Taiwan, South Korea and Japan higher. Local currencies got a boost as the dollar suffered its worst day since 2009 overnight. Bond yields declined as the Federal Reserve appeared closer to moderating its aggressive rate-hike campaign after data showed consumer price increases slowed in October.
  • Saudi Arabia’s energy minister said OPEC+ will remain cautious on oil production, weeks after the group angered the US by lowering output. The 23-nation alliance, led by Riyadh and Russia, is set to meet on Dec. 4 to decide whether to cut production again, keep it stable or reverse course and pump more. Members are looking at the state of the global economy and seeing plenty of “uncertainties,” Prince Abdulaziz bin Salman said. Oil has dipped sine June as central banks raise interest rates and China maintains its Covid Zero strategy. But Brent is still above $95 a barrel and up 23% this year, with many traders concerned about supply shortages once the European Union effectively bans the import of Russian crude from next month.
  • Gold is on track for its biggest weekly gain since March after cooler-than-expected US inflation data set the stage for a slowdown in aggressive interest-rate hikes. A relaxation in the Federal Reserve’s monetary-tightening path would likely be positive for gold, which bears no interest and is priced in the US currency, meaning it typically has a negative correlation with the dollar and rates. While steep rate hikes by the Fed this year have weighed on bullion and sent it plunging as the greenback surged, Thursday’s inflation figures triggered a 2% decline in the dollar and a 2.9% gain in gold in the session.
  • The euro zone faces a grim winter as a recession bites just as double-digit inflation grips the region and war rages nearby, according to the European Commission. European Union officials in Brussels on Friday slashed their forecast for growth next year, predicting barely any expansion, and raised all their projections for consumer prices. They reckon the economy is now shrinking and will keep contracting during the first quarter. “Amid elevated uncertainty, high energy price pressures, erosion of households’ purchasing power, a weaker external environment and tighter financing conditions are expected to tip the EU, the euro area and most member states into recession,” the Commission said. “Broadening price pressures are expected to have moved the inflation peak to year-end.”
  • The yen surged past a key psychological level of 140 per dollar for the first time in almost three months as speculation the Federal Reserve will slow the pace of rate hikes erodes the greenback’s advantage against the Japanese currency. The yen jumped as much as 1.6% to 138.78 per dollar Friday, rallying for a second day to the strongest level since late August. It’s on track for the best weekly performance against the greenback since 2008 as a sharper-than-forecast drop in US inflation Thursday bolstered the odds of a dovish tilt by the Fed. The rally is likely being supercharged as investors unwind a massive build-up of bets against the Japanese currency. It fell to a 32-year low in October as policy makers pledged to keep borrowing costs at rock bottom levels, widening the interest-rate differential between the US.
  • The US, Japan and other countries will offer a climate finance deal worth at least $15 billion to help Indonesia shift its coal-dominated power grid away from the polluting fossil fuel. Details of an agreement will be announced during the Group of 20 meetings in Bali next week after talks between US President Joe Biden and Indonesian President Joko Widodo, Coordinating Maritime Affairs and Investment Minister Luhut Panjaitan said Friday, confirming an earlier Bloomberg News report. The “just energy transition partnership,” or JETP, pact with Japan, the US and others follows roughly a year of negotiations and could be announced as soon as Tuesday, according to people familiar with the plans, who asked not to be named because the details aren’t yet public.
  • BlackRock Inc. is removing Europe’s top ESG designation from a string of exchange-traded funds, after the EU provided updated guidelines to the asset management industry. The so-called Article 9 classification will be stripped from 17 ETFs, BlackRock said Friday. The funds had $26 billion of combined assets under management at the end of September, the firm said. The world’s largest asset manager is the latest to be ensnared by adjustments to Europe’s ESG investing rulebook, known as the Sustainable Finance Disclosure Regulation. SFDR was enforced in March 2021, but the EU has since clarified its rules to require that the Article 9 designation be reserved for funds with 100% sustainable assets, with allowances for hedging and liquidity. That’s a higher threshold than many in the industry had anticipated.
  • The entire $16 billion fortune of FTX co-founder Sam Bankman-Fried has now been wiped out, one of history’s greatest-ever destructions of wealth. The downfall of his crypto exchange and its trading house, Alameda Research, means assets owned by the mogul once likened to John Pierpont Morgan have become worthless. At the peak, the 30-year-old was worth $26 billion, and he was still worth almost $16 billion at the start of the week. The Bloomberg Billionaires Index now values FTX’s US business — of which Bankman-Fried owns about 70% — at $1 because of a potential trading halt, from $8 billion in a January fundraising round. Bankman-Fried’s stake in Robinhood Markets Inc. valued at more than $500 million was also removed from his wealth calculation after Reuters reported it was held through Alameda and may have been used as collateral for loans.
  • The 2024 presidential race is taking shape following midterm elections that gave an early boost to President Joe Biden and Florida Governor Ron DeSantis, while leaving Donald Trump on the defensive. Even with ballots still being counted and control of Congress up in the air, the three men quickly took center stage as White House contenders with pressure mounting for each to announce their decisions to run. That could crowd out other potential rivals on both sides. Biden reiterated Wednesday he intended to seek another term after Democrats fared better than expected in congressional elections, declaring that polls showing most Americans don’t want him to run again will have no bearing on his eventual decision.
  • The Environmental Protection Agency is taking the next step in advancing limits on methane emissions with a plan to intensify leak detection and repair requirements for all oil and gas wells. The supplemental proposed rule would set a zero-emissions standard for pneumatic controllers and pneumatic pumps at affected facilities in all segments of the industry, Biden administration officials said at the COP27 climate summit in Sharm el-Sheikh, Egypt. “This supplemental proposal really pushes the envelope on every single thing we can do” to tackle emissions while allowing companies to employ “the best technologies” to search out and destroy leaks, EPA Administrator Michael Regan said at a news conference.
  • German lawmakers approved next year’s federal finance plan including net new borrowing of €45.6 billion ($46.6 billion), according to documents seen by Bloomberg. The final figure, which is in line with a Bloomberg report published Tuesday and is more than double the €17.2 billion initially planned, was settled after a meeting of the lower house of parliament’s budget committee that stretched into the early hours of Friday morning. Germany suspended a constitutional limit on net new borrowing to help fund generous spending to offset the impact of the coronavirus pandemic. The budget plan for next year brings borrowing back within the limit — known as the debt brake — for the first time since 2020.
  • Chinese regulators told the nation’s second-tier banks to dole out another 400 billion yuan ($56 billion) of financing for the property sector in the final two months of the year, adding to a raft of support measures that have stoked recent gains in the beleaguered industry’s stocks and bonds. The money — in the form of loans, mortgages and bond investments — adds to the $85 billion of net financing that the country’s six largest lenders were told to extend in September, people familiar with the matter said, asking not to be identified as the matter is private. China’s financial policymakers are stepping up efforts to arrest the slump in the country’s property sector, after measures from interest rate cuts to subsidies failed to revive growth. A crackdown on the real estate sector has led to a string of bond defaults and residential construction halts that have angered homebuyers. China’s home prices sank for a 13th month in September.
  • China reduced the amount of time travelers and close contacts of virus cases must spend in quarantine, and pulled back on testing, in a significant calibration of the Covid Zero policy that has upended the world’s second-largest economy and raised public ire. The changes, detailed in a 20-point playbook for officials, seem aimed at both reducing the country’s global isolation and easing the impact of virus mitigation measures on the ground. One of the most notable shifts will see the time travelers into China are required to spend in quarantine cut to five days in a hotel or government facility, followed by three days confined to home, according to a National Health Commission statement Friday. The current rules require 10 days quarantine in total, with a week in a hotel then three days at home.
  • Russia said it will hold talks with the US in late November or early December in Cairo about inspections of atomic weapons sites under the New START treaty, a step toward reviving broader arms-control talks suspended since the Russian invasion of Ukraine. The consultations in the Egyptian capital will last about a week, Russian Deputy Foreign Minister Sergei Ryabkov said Friday, according to state news service RIA Novosti. Russia barred US inspectors from its nuclear weapons sites in August, citing visa and travel restrictions for Russians that it said made it impossible for them to reach the US. The two countries had suspended the on-site inspections in March 2020 because of the Covid-19 pandemic and were discussing how to restart them safely. The Bilateral Consultative Commission, which handles practical matters on how the New START deal is implemented, last met in Geneva in October 2021.
  • Global credit markets just bounced back from a torrid few months with one of the best weeks this year. Easing credit risk spurred more than $100 billion of issuance across the US and Europe, while in Asia, high-grade dollar bonds are on course for the biggest weekly gain since the onset of the pandemic. Europe in particular is enjoying a debt-deal revival, with more than €50 billion ($51 billion) of weekly issuance for only the fifth time this year, according to data compiled by Bloomberg. Borrowers are piling back in as global markets rally following the lowest headline US inflation reading since January, before Russia’s invasion of Ukraine pushed up commodity prices. That’s spurring optimism that central banks could start to slow the pace of interest rate hikes if the surge in prices has peaked.
  • Mark Zuckerberg is running low on believers in his vision of a virtual-reality future—at least among Meta shareholders. Some analysts say the company’s chief executive officer is pitching the wrong audience. Meta Platforms Inc. is essentially running two operations: the social media platforms including Facebook and Instagram, which make all the money, and a massive project called Reality Labs that’s trying to build a digital world called the metaverse. While it’s not unusual for a technology company to invest heavily in a moonshot, Meta’s bet has become divisive at a moment when its social media revenue is slipping. “They are really taking on a massive science project—it’s essentially the Manhattan Project,” says Kamran Ansari, a venture partner at Greycroft Partners and early angel investor in Meta back when it was called Facebook.
  • Twitter Inc. reinstated “official” badges for high-profile accounts to combat a growing problem of users impersonating major brands.  The gray badge reappeared below the profiles of businesses and major media outlets Friday. The identification marker was rolled out earlier this week before being scrapped. Twitter is struggling with impostor accounts since the company allowed paying subscribers to get verified blue check marks. One account claiming to be Nintendo Inc. posted an image of Super Mario holding up a middle finger, while another posing as pharma giant Eli Lilly & Co. tweeted that insulin was now free — forcing the company to issue an apology. A purported Tesla Inc. account joked about the carmaker’s safety record.
  • Convicted Theranos Inc. founder Elizabeth Holmes said she deserves to spend 18 months in home confinement, not prison, asking the judge who will sentence her next week to look beyond the “mocked and vilified” caricature of her as a cheat, and to instead see her as a human being. Ten months after she was found guilty of defrauding investors who lost hundreds of millions of dollars in her blood-testing startup, the 38-year-old filed a request for leniency late Thursday accompanied by letters from more than 130 friends, relatives, Theranos investors and former company employees who describe what her lawyers called “the real Elizabeth Holmes.” Criminal defense lawyers have said US District Judge Edward Davila, who has handled her case since she was indicted in 2018, the year Theranos collapsed after once reaching a valuation of $9 billion, will use whatever sentence he imposes to send a message to Silicon Valley and beyond.
  • Boeing Co. sees India as key to offsetting sluggish business in China, its biggest overseas market, as it tries to seal a massive aircraft order from the South Asian nation’s flag carrier and expand its presence in the country. “With uncertainty around China, the Indian market is increasingly important to us,” John Bruns, Boeing vice president of commercial sales and marketing in India and Southeast Asia, said in an interview with Bloomberg News on Friday. Boeing and Airbus SE are both in the running for what could be one of the largest aircraft deals ever as formerly state-run Air India Ltd. is overhauled by new owner Tata Group, which is considering adding as many as 150 737 Max jets and about 50 Airbus widebodies to its fleet.
  • The upcoming football World Cup in Qatar is expected to shrug off controversies over the host nation’s human rights conduct to deliver record revenue for organizers FIFA. The one-month tournament, which begins on Nov. 20, is on course to top the roughly $5.4 billion in revenue that the 2018 World Cup in Russia generated for football’s governing body, a person familiar with the matter said, asking not to be identified discussing confidential information. FIFA has pre-sold broadcasting rights, about 240,000 hospitality packages and nearly three million tickets for the event, the person said. Marketing sales for its 2019-2022 cycle, will exceed a budgeted figure of about $1.8 billion, the person said. The World Cup is sponsored by major brands including Adidas AG and Coca-Cola Co.

*All sources from Bloomberg unless otherwise specified